Compassionate capitalism

The Indian stock market has always had a love-hate relationship with Indian politicians. Finance minister P Chidambaram famously remarked many years ago that he was more concerned with what happens in Khan market (in Delhi) than in the Bombay stock market. He meant, of course, that the concerns of ordinary Indians were more important than the “speculative” profits generated on Dalal Street.

Recently Omar Abdullah, the articulate National Conference leader, said much the same thing. Indeed, he went a step further: “Quite honestly, where the Sensex goes is of little or no concern to me, nor is the level of GDP growth. What I am more interested in is how much of the benefits of this economic boom we keep reading about filters down to the ‘aam admi’.”

So are Chidambaram and Abdullah right? Is the stock market irrelevant to the aam admi? To be fair, Chidambaram, since his Khan market-stock market remark, has changed his outlook on the Sensex. Today he makes encouraging noises about how a rising stockmarket reflects the confidence of investors—Indian and foreign—in the Indian economy. And yet the feeling persists that Indian politicians use the stockmarket as a political punching bag to score populist points.

A stock exchange is primarily a vehicle to enable companies to raise risk capital from a pool of investors. These investors could be individuals or institutional, Indian or foreign. The point is the capital raised goes towards building a company’s business, generating employment, enlarging the tax base and contributing to overall economic development.

Unfortunately, those who benefit most visibly from all of this are middle-class, urban people. That is why politicians’ criticism strikes a chord. Aren’t the majority of Indians—nearly 70 per cent—who live in villages left out of the benefits delivered by the stock market boom and even high GDP growth (as Omar Abdullah suggests)? Well, they are in the short term-and inevitably so. But in the medium term (say, 10 years) and certainly in the long term (25 years), the benefits of consistently high GDP growth will percolate down to the poorest of the poor in rural India. A large and strong economy will produce large and strong companies. As these companies seek markets beyond the saturated urban metros, they will move into villages, building roads, power plants, factories, water sanitation units, IT centres and infrastructure.

That is the classical mode of development in a free market system which India embraced in July 1991. The system may not be perfect but it is the least imperfect one in the world. And free market capitalism need not be paternalistic nor exploitative. Compassionate capitalism might seem an oxymoron but that is the way it is practiced—highly successfully—in countries like Sweden. Such societies place a large emphasis on social welfare and genuine equality of opportunity. But to achieve that an economy must reach a critical mass in size and per capita income so that is has the ballast to take its benefits to the poorest sections of society.

India’s economy, during its socialist regime from 1947 to 1991, grew at a pitiful average of 2.5 per cent a year. Since 1991, our economy has grown at an average of over seven per cent a year, thanks entirely to a relatively open, liberalised economy. As a result of sharply higher growth in GDP since 1991, poverty levels have fallen from over 40 per cent to around 23 per cent today. So even India’s nascent free market economy has had a real impact on people’s lives, including the rural poor. Imagine how much greater that impact would be if a GDP growth rate of eight per cent a year could be sustained for the next 15 years? In short, free markets are the best guarantors for reducing poverty and human misery and eventually creating an egalitarian society.

So clearly, the economy and the stock market are closely intertwined, complementing each other to everyone’s benefit. Everyone? That is the sticking point for Indian politicians. Many still believe, despite the economic example of “communist” China, that a free market is simply not a fair market. The rich become richer, the poor stay poor. In private though, some of these politicians have begun to concede that they have been wrong for decades and that the best way to free India of poverty is to free India’s economy.

There will come a time when the wisdom of this will dawn on every Indian politician. Till then India’s poor will have to wait longer than they need to for deliverance.

Email: minhazmerchant@business-leaders.com